WEAKNESSES

Economic and financial position damaged by long period of hyperinflation

Shortage of cash

Underinvestment in infrastructure (particularly energy)

Precarious food and healthcare situation: majority of the population depends on international aid

One of the highest rates of AIDS infection in Africa and in the world

RISK ASSESSMENt

Growth strangled by shortage of cash

Growth, largely dependent on agricultural production, recovered in 2017 due to favourable weather conditions, which resulted in an exceptional harvest after two years of drought. Maize production reached 2.1 million tonnes, increasing agricultural GDP growth by 20%. However, activity is expected to slow sharply in 2018. Rainfalls for the 2017/2018 agricultural season are expected to be lower than those in 2017, impacting on activity. Gold exports are expected to continue to benefit from the stability of world prices. Nevertheless, manufacturing will suffer from the shortage of foreign exchange, which will hamper imports. Since 2016, the economy has been paralysed by a liquidity crisis whose roots lie in the government’s decision in April 2009 to abandon the Zimbabwean dollar in favour of a basket of currencies, making the US dollar the monetary system’s reference currency. The widening current account deficit, weak inflows of capital and the crisis of confidence have resulted in a limit on the quantity of dollars in circulation, pushing the banks to limit withdrawals to 50 dollars a day. The rise in dollar-indexed bond notes introduced in November 2016 by the central bank following the award of a USD 500 million loan by the Trade Finance Bank for Africa (Afreximbank), together with the use of electronic payment methods has helped mitigate the decline in liquidity to some extent. The growth of money in circulation observed in 2014 took the country out of the deflationary spiral in which it had been trapped since 2014. However, inflation (probably underestimated in official figures), particularly of imported goods, continues to rise rapidly, rekindling fears of hyperinflation.

Unsustainable twin deficits

The public deficit deepened in 2017. Higher tax receipts, associated with a more favourable economic context, were not enough to offset the spending commitments made by the authorities and allocated mainly to debt interest payments and civil service wages. In 2018, the government aims to reduce the public deficit by half, to 4% of GDP, but this already unlikely scenario suffers from the government’s inability to reduce spending. With almost 90% of spending allocated to the wage bill in 2018, the government’s room for leeway on the budget will remain limited. Moreover, the slowdown in activity and the organisation of the 2018 presidential elections will adversely affect revenues as well as spending. The public debt will continue to rise in the absence of fiscal reform and consolidation. Authorities will continue to make use of the domestic market, thus weakening the banking system and credit growth. Arrears with international institutions limit the country’s ability to make use of international aid. Although the country repaid a share of the arrears due to the IMF in October 2016, it still owes USD 1.6 billion to the African Development Bank and the World Bank.

Higher metal prices are expected to encourage export growth in 2018, but the reduction in the current account deficit will still be mainly attributable to the contraction in imports. As in 2017, the shortage of dollars is expected to put pressure on imports and increase the likelihood of depreciation in the bond notes on the black market. The pressure on this substitute currency will continue in 2018, in the absence of action by the central bank and new inflows of foreign exchange.

The “Crocodile” succeeds Robert Mugabe after 37 years in power

On the 21st November 2017, after 37 years as Head of State, Robert Mugabe (93), was forced to step down. This came a week after the army, denying a coup d’état had taken place, seized control of several institutions in Harare and held Mr Mugabe and his wife under house arrest. The bloodless intervention was triggered by the dismissal of Vice President Emmerson Mnangagwa a few weeks earlier, with the intention of opening a route to power for Mr Mugabe’s wife, Grace Mugabe. The democratic transfer of power, with the assistance of the army, thus enabled Mr Mnangagwa, nicknamed the “Crocodile”, to succeed Mr Mugabe. The interim president has already been selected to stand for the general elections in 2018 to shore up his position as leader of the country. A long-time ally of Robert Mugabe and from the ranks of ZANU-PF, the ruling party since independence, the Crocodile is not expected to make any radical changes to the way politics operate in the country. Nevertheless, while massive unemployment and the shortage of cash are fuelling popular discontent, the new president is expected to quickly find solutions to the economic crisis. To do this, dialogue with international donors and bilateral partners could be resumed to allow the country to benefit from aid, which has become indispensable. The president also intends to win back the confidence of foreign investors who fled the country, mostly because of Mr Mugabe’s management. The 2018 elections promised by Mr Mnangagwa, and the conditions under which they will be run, could therefore be a test for the firmness of the Crocodile’s commitments.